When I first started to invest I can only afford a measly $50 per month. Granted I was in college still and living on Ramen Noodles but with a part time job at the mall and an internship at our local investment firm I finally started to understand the importance of investing.
Over time that $50 a month turned into $100 a month, then $250 a month and kept growing from there. It almost seemed surreal when it got to a point where I could invest $5000 at once into one investment. It was a very good feeling but also scary knowing how long it took me to save up that $5000. I definitely didn't want to put it into an investment where I would lose all my money. I wanted it to grow but not for the sake of losing it all. When I understood how awesome the Roth IRA was I funneled as much as I could into it wanting to max it out. I started by investing into mutual funds because I definitely wasn't a stock picker and I didn't want to pretend to be. Mutual funds helped me diversify my money and having a professional portfolio manager make those buying and selling decisions on my behalf.
So, you've found yourself with an extra $5,000 in your bank account, and you're wondering what you should do with it. Sure, a new boat would be nice, but you should consider investing that money.
The common misconception is that you have to have thousands and thousands of dollars to start investing, but that couldn't be further from the truth. There are dozens and dozens of ways that you can invest $5,000 in quality short-term investments. If you haven't entered the investment arena yet, it can be scary to get started, but don't worry. It's much easier than it may seem.
When you're looking to invest, there are several different ways that you can do that, and it's important that you understand all of the options. Before you run off and invest your newfound money in an alpaca farm, let's look at some of the different choices to choose from to ensure that you're making the best decision for your money.
Investing in Mutual Funds – Tradeking
As I mentioned earlier, I started investing and diversifying by using mutual funds. Mutual funds are a company that handles all of the investing for you. They compile all of the money from the participating investors and then distribute that money based on the focus of the mutual fund. Some mutual funds invest the money into specific types of funds, like technology.
If you’re looking to put your money into a mutual fund, Tradeking is a great place to do that. You can easily open up a Roth IRA account and put your $5,000 into as many mutual funds as you’re comfortable with. Not only will this get you a decent ROI, it will also help you diversify your portfolio over several different avenues.
Invest in Others – Lending Club
Peer-to-peer lending is an ancient idea. Once upon a time, it involved going to someone's door to ask for money to buy a cow, chicken, or some other farm animal, but thanks to the Internet, peer-to-peer lending has never been easier (or more profitable).
If you're looking to invest $5,000, Lending Club is an excellent way to do that. With Lending Club, they will display thousands of different users that are looking to borrow money for a variety of reasons. Anything from home improvements to buying a new car loan. You can decide which investments that you want to take part in based on your risk preference and specific goals.
One of the biggest advantages of Lending Club is that you can invest in a borrow for as little as $25, which means that you'll be able to split up your $5,000 across dozens and dozens of different opportunities. You can invest in a variety of different high-risk investments and balance them with lower-risk notes.
If you're worried about the legitimacy of Lending Club, worry no longer. They require their borrowers to go through a strict application process before they allow they to post a request on the site. Lending Club requires all of their borrowers to have a stable work history and a credit score of at least 660, but you can put even stricter requirements for your investments. The site makes it incredibly easy to search through the different opportunities by assigning each loan request a “grade.” The higher the grade, the lower the risk for you and the other investors.
One unique advantage of Lending Club is that you don’t have to worry about what the stock market is doing. If you turn on the TV and see that the DOW is crashing (speaking hypothetically, of course), that isn’t going to destroy your investments, because you’re investing in other people.
One thing that you should take note of when deciding where to put your money is that you're going to face some fees with Lending Club. They are going to charge you an IRA fee until your account has at least $10,000 in it. These charges aren't going to break your bank, but you should realize that they are going to charge you money for your account.
Let Robots Invest for You – Betterment
Maybe you're not a hands-on investor that wants to play a role in deciding which investments are best for you. If you fall into this category, then Betterment is going to be the best route for you. Betterment is one of the best ways to investment your $5,000 and then forget about it.
Betterment makes investing your money as easy as a few clicks of your mouse. After you create a Betterment account (which will only take about an hour), you can deposit your initial investments, set your financial goals, and your risk tolerance. After you've made those decisions, Betterment will handle everything else for you.
The website uses “robo-advisors” to effectively invest your money without you having to spend hours researching different companies or options. Betterment uses advanced algorithms that I won't bother explaining because they are too complex. What matters is that Betterment's algorithm is excellent at making you money.
Betterment investors are experiencing annual ROIs of around 6%. Not only will you get a great return on your $5,000, but Betterment will also automatically diversify your money with a mixture of ETF and international notes. Not only will they handle your initial investment, but the robo-advisors will also continue to reinvest your money as you earn money inside of your portfolio.
Invest in the Stock Market
When you think of investing, you probably think of the stock market. Putting your money in stocks can give you the best reward, but it also comes with some risk. The idea of trading stocks can be downright terrifying for new investors, and even for some older investors. There are a few tools that you can use to make the process easier and make the most of your $5,000 investment.
One of the best ways that you can start your stock trading journey is by opening an account with TradeKing. They have one of the best all-around services for trading stocks. They continue to offer excellent customer service and low fees ($7 per trade). Not only that, but they will also offer several quality tools to help you make smart decisions with your money.
If you want to invest in the stock market, but don’t want to be trouble with hand picking each investment, look no further than Motif. Motif is a website that will allow you to buy a bundle of 30 stocks (known as a motif), and these stocks all revolve around one central theme, like medical technology. These motifs are an excellent way to diversify your portfolio and help you put your money into a variety of different avenues. Not only can you automatically diversify your portfolio, but Motif is going to offer you the lowest rates per stock trade ($4.95 per stock/ETF).
Invest in Yourself – Pay Down your Debt
Paying off your debt isn't the sexiest way to invest your $5,000, but it could be one of the best options. Let's look at an example to see just how efficient paying off your debt can be. Every investor is different, but in the majority of cases, paying off debts can help you save thousands of dollars in the future (which you can use to invest that money).
Let's say that you have credit card debt that equals near $5,000 and an APR interest of 15%. Those credit card debts can cost you around $70 every month. The average household has around $15,000 of credit card debt, which is going to put a strain on your bank account every month. Now that you've found yourself with some extra money in your wallet, now is a great time to pay down those debts and save money in interest payments.
Now that you have the extra $5,000 burning a hole in your pockets, you can use that money to pay off credit cards, pay off your car loans, or even make an extra couple payments on your mortgage. It won't be as fun as buying a new boat, but it's a much safer investment.
There's not a better feeling than getting rid of all your debt. After graduating college, I had credit card and student loan debt that I was starting to feel the pressure on. Thankfully by finding a girlfriend which is now my wife who hated debt we were able to formulate a game plan to get all of my debt paid off. When I wrote that last payment to get rid of my student loans it was one of the most freeing feelings I've ever experienced. When you have $5000 to invest the temptation is to invest because it's to make more money but I promise you having that debt lingering will never go away. Once you go debt free you never go back but you have to get there first.
Invest in your Kids – College Savings Accounts
The kids are the future of America, which makes your kids an excellent place to invest your money. If you're like the vast majority of people, you haven't started putting money towards your kids' futures. The average student graduates college with $50,000 in student loans. If you're hoping to give your children the tools that they need to avoid those student loans, you should take your $5,000
There are a couple of different avenues that you can use to prepare for your children's future. The most common way is to open up a 529 college plan. These plans are also known as Qualified Tuition Programs, and they allow you to invest the money in the plan after taxes, and you can withdraw that money tax-free as long as you use it pay for education fees. Every state has different limits and requirements for the 529 plans, which means that you'll have to look at your particular state's limits.
If your state does not have any incentive for investing in their 529, like income tax deductions, then I would look at opening an account with Wealthfront. Not only do they have a full 529 through the state of California, but they will do all the management of the account for you.
Your kid's college fund isn't going to have an immediate return on your investment, but if you want to give your children the money to further their education, opening up one of these accounts is the best way to do that.
Now that I have four children the thought of how much college is going to cost me and my family is very scary. Heck, it was scary after having one kid but now that I have four it's hard to ascertain how much its really going to cost.
There's definitely a good feeling investing in your kids making sure that they don't graduate with student loan debt, a feeling that is all too familiar with me. If you want your kid to have a better life than you did, did it make sense to invest for their college but make sure that you're taking care of yourself first. All too often people don't realize or consider that you can't borrow money in retirement like your kids can borrow to pay for school. Yes, they'll be straddled with student loan debt but they'll be able to have a job. If you are retired and you have no income there's no where you can go to borrow to pay your bills and live your golden years the way that you want.
Investing in Real Estate
Investing in real estate has received a bad rap over the years, but real estate is looking up. There are several ways that you can invest in real estate with your $5,000. Real estate can become an excellent way to let your money make you money, but if you’ve kept up with my blog, you know that I haven’t always had the best success with real estate investing.
The first way and most traditional technique for investing in real estate is to be a landlord. You buy the property and then find a renter. This could either be business property or housing. Being a landlord can be the most profitable, but it can also be the most cumbersome. In most cases, $5,000 won't get you much for this type of real estate investing.
Luckily, Fundrise has made it extremely simple to add real estate to your investment portfolio. Fundrise allows you to buy notes in different real estate investments that go through scrutiny by various real estate experts, and only 2% of the people that request loans through Fundrise get approved.
Not only does Fundrise make it easy to invest in real estate, but it's also a very profitable way to use your $5,000 that's just sitting around. Fundrise boasts an impressive average ROI of almost 7% in 2016. Unless you want to be a hands-on landlord, this is an excellent way to utilize that money that you have sitting around.
Investing $5,000
Regardless of if you're a new investor or a seasoned pro, it's vital that you make the best decision for your money. Thanks to the internet, there are dozens and dozens of different ways that you can put your money to work. Your investment portfolio is going to secure your financial security.
When most people think of investing, they think of buying stocks. There is nothing wrong with putting your money in the stock market, but it isn't necessarily the wisest or most secure way of investing your money.
While you may think that $5,000 isn't enough to invest, but that couldn't be further from the truth. Regardless of how much money that you have sitting around, there is ways that you can investment that money and start planning for your future.
The post 7 Best Ways to Invest $5,000 appeared first on Good Financial Cents.
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